Time to Increase the Rent for Your San Francisco Rental? Dos and Don’ts.

Some landlords have patiently waited for the post era of the COVID-19 pandemic to increase their tenants’ rent. While these landlords are eager to proceed with rent increases, it is important to carefully comply with the applicable law and procedures. An improper rent increase can expose landlords to hefty rent refunds, years down the road. Let’s go over a few pitfalls to avoid when increasing tenants’ rent in San Francisco.

The Basics: Rent Limits on Existing, Multi-Family Housing

Units built prior to June 13, 1979 are subject to the rent limitations set forth in the San Francisco Rent Ordinance. The initial rental rate is the “base rent”. Once the base rent is set, the landlord can only raise it by 60% of the increase in the San Francisco-Oakland consumer price index. (For instance, the rate is 3.6% for increases that take effect by February 29, 2024.) The rent cannot be increased more frequently than once a year, and the most recent increase sets the “anniversary date” of the base rent. It is also important to note that before proceeding with a rent increase, San Francisco landlords must obtain a license by registering their units with the Rent Board Housing Inventory, which asks for information about unit size, dates of occupancy, and rental rate.

If you missed an increase, don’t worry. A landlord can “bank” the increase and impose it (and the next one) at the next anniversary date. Your rent increase notice needs to include the rate used for the annual allowable rent increase and the rates used for the banked rent increases. Rent increases can be personally delivered or mailed. Increases above 10% require 90 days to expire, while those at 10% or below (i.e., any increase that doesn’t include “banking”) only require thirty days.

Exemptions from Rent Control

The Costa-Hawkins Rental Housing Act is a state law that prevents cities from imposing rent control in several circumstances. First, it achieves “vacancy decontrol” – the ability of a landlord to reset the “base rent” when the “last original occupant no longer primarily resides” at the unit. (Parties often dispute the meaning of “original occupant” and “primarily residing” in this context, and for good reason.)

Next, to promote development, it “locks in” the date of any “new construction” exemption that existed when Costa-Hawkins took effect (in 1996) and ensures that newly constructed units will be exempt going forward. Additionally, state law prioritizes owner occupancy, so single-family homes and condominium units are also generally exempt. Certain exceptions apply, however, including if the owner of a condominium unit was a subdivider who did not first live in their unit for a year.

Single family homes can also become subject to rent control, for instance, where an owner-occupant has multiple roommates (creating de facto “multi-family” housing), or where the owner has created an in-law unit. However, even when units are exempt from local law, they might be subject to regulation under state law. The Tenant Protection Act of 2019 (“AB 1482”) generally limits rent increases to 5 percent plus the percentage change in the cost of living, or 10 percent, whichever is lower. It is unclear how AB 1482 and Costa-Hawkins interact. Costa-Hawkins dictates that it applies “notwithstanding any other provision of law”, but AB 1482 would be rendered ineffective in cases of separately alienable units or new construction. This inconsistency will have to play out in the courts.

For now, single-family homes and condominiums are exempt from the rent limitations imposed under the Tenant Protection Act of 2019 (“AB 1482”). However, to avail yourself of this exemption, (i) the owner must not be a real estate trust, a corporation, or an LLC with a least one corporate member, and (ii) must provide to the tenants the mandated written disclosures set forth in Section 1947.12(d)(5) of the California Civil Code, which can be found at:

https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV&sectionNum=1947.12.

Once the exemptions are provided, you may increase your tenants’ rent to market rates. Increases that do not exceed 10% only require a 30 days’ advance notice. However, increases above 10% require a 90-day advance notice. You may serve it personally on your tenants or serve it by mail. If you mail the notice, you will need to enclose an unsigned proof of service and add five (5) days to the effective date if mailed within the State of California or ten (10) days if mailed outside of the State of California.

Rent Increase Perils To Avoid

Landlords face many challenges in serving rent increases. As stated above, rent registration is a requirement of the annual allowable increase under the Rent Ordinance. When it comes to larger increases, the situation becomes more complicated. California’s anti-price-gouging rules take effect whenever a state of emergency is declared, and they arguably limit increases to 10% in most contexts. (These regulations have become an evergreen feature of emergency management for fires, rains, pandemics, etc., so it is a good idea to consult with an attorney whenever you serve an increase above 10%.)

No rent is owed if a unit is “uninhabitable”. And if a tenant complains to the department of building inspection about a habitability defect, and a notice of violation is issued and unabated for 35 days, no rent increases can be imposed. An increase in retaliation for the exercise of tenant rights is prohibited, and San Francisco also penalizes bad faith rent increase notices that are imposed in an attempt to coerce a tenant to vacate.

For any assistance with your rent increases or if required disclosures are not part of your tenants’ rental agreement, you may contact Gael Bizel-Bizellot for guidance. Contact us at your convenience to request a consultation.

Neither this website nor this post are intended to create an attorney-client relationship.