California is one of the biggest, most dynamic states in the country, with over 16 million tenants calling it home. Many people from different parts of America relocate here every year, for education, work, and much more.
This provides immense opportunity for property owners in California to earn substantial ROI from their rental units.
However, while deciding and increasing the rent for their rental, the landlords need to follow appropriate rules and regulations regarding rent increase and cap.
Rent Caps in California
The Tenant Protection Act of 2019, with due amendments made in 2020 (AB 1482), is applicable when it comes to rent calculation and rent increase in California.
In terms of lease control, California adopts statewide rent control laws with individual country laws differing from place to place, in addition to the statewide jurisdiction. These laws govern rent, eviction process, renter protection, relocation assistance, and owner move-ins, as well as exceptions.
These exempted properties include:
- Mobile homes
- School and college dormitories
- Hotels
- Duplex where the owner occupies the unit
- Single-family homes
- Condominiums
- Properties not owned by a corporation, a REIT (real estate investment trust), or any LLC
- Rental properties of any non-profit agencies or organizations
- Rental properties subject to pre-existing local ordinances
What is the Maximum Rent Increase Allowed in California?
There is no single answer to this question. The provisions under the Tenant Protection Act of 2019, with amendments implemented on January 1, 2020 will be in effect up to January 1, 2030.
According to this law, a maximum rent increase of 5% + the Consumer Price Index CPI (CPI = inflation rate), up to 10% overall is permitted. As mentioned above, the exempted properties do not have to abide by these rent control laws. Landlords owning exempted properties can increase rent as much as required.
It is important to note that rental increments vary with areas and municipalities as the CPI varies from place to place. Generally speaking, in most parts of California, the yearly cap on rent increase would be 7.5% as the CPI averages around 2.5%. However, we urge tenants and landlords to check with their local city laws to get a clearer idea of the rent increase caps governing the neighborhood.
The CPI is published every year by the US Bureau of Labor and Statistics and changes with time considering the consumer spending and lifestyle pricing in the area. The AB 1482 requires landlords to take the April CPI for calculating maximum rent increase for their California rental unit.
The Tenant Protection Act considers the needs of the landlord and the budget of the tenants, balancing both very well. These changes do not affect the maximum late fee for rent in California; you can still charge what is a reasonable amount and listed in the lease agreement. Landlords need to be well aware of all rent increase laws to understand precisely how much they can hike the rent for their property.
Action Properties is a leading property management company in California that offers full-service management for all rental investment properties in Placer County. Connect with us to discuss your rent-related queries and get experienced advice.
