Almost half of California’s residents live in rentals. The cost of living, especially rental rates, has risen dramatically over the last two decades, creating some of the least affordable rental housing in the world in many California cities.
California’s response? Rather than building more housing supply, they try to force rents lower through government regulation. Read: rent control.
Rent Stabilization vs. Rent Control in California
Rent control is used to describe legislation that puts a cap on the rental rates in any given state or city. While imposed at the local level, the common theme among rent control laws is restricting rents to specific dollar amounts and eliminating evictions. For instance, rent controlled apartments in a given neighborhood might be allowed to charge $1,200 per month for one-bedroom apartments, $1,300 per month for two-bedroom apartments, and so on.
Rent stabilization works differently, capping the allowed rent increases as a percentage of the rent. For example, if a city restricted rent hikes to 4% per year, a landlord renting an apartment for $1,000 could raise the rent by no more than $40 over the next year.
Not all cities in California impose rent control or rent stabilization rules. That’s why every real estate investor should not only review a particular state’s and city’s laws on taxes and other property fees but also how friendly or unfriendly the state and local laws are to landlords before investing.
Note that there’s no statewide rent control in California, but there is statewide rent stabilization.
California Rent Stabilization Law
In 2019, California passed AB-1482, also known as the Tenant Protection Act of 2019. It imposes statewide rent stabilization and requires landlords to renew virtually all lease agreements.
The law restricts rent increases to no more than 5% each year, plus a local cost of living increase allowance of up to 5%. The cost of living adjustment is capped at the change in the local consumer price index.
So, California landlords may raise rent by between 5-10% each year, depending on the cost of living change. The law applies retroactively to March 2019 as the baseline rent amount.
The restriction on rent hikes doesn’t apply when a rental unit turns over. After a tenant moves out and the property owner relists it for rent, they can list it at today’s market rent. But landlords can’t non-renew existing tenants’ lease contracts, with a few rare exceptions (more on these momentarily).
The Tenant Protection Act of 2019 does not specify an enforcement mechanism. Tenants must hire an attorney to sue their landlord to enforce violations.
This statewide rent stabilization law will expire on January 1, 2030 unless legislators extend it.
Forced Lease Renewals
The California law labels non-renewal of lease agreements as “no fault evictions.” It only allows landlords to non-renew tenants after their lease contracts expire under the following circumstances:
- The owner moves into the unit themselves,
- The owner converts the unit into a condominium, or
- The owner renovates or demolishes the unit.
In these cases, the landlord must pay the tenant a “relocation fee” equal to one month’s rent.
Once you sign a lease with a renter, you’re typically stuck with them until they decide to move on their own.
You can still file for an “at fault eviction” if the tenant explicitly violates the lease contract. But if the renter is simply dirty, or makes you chase them for rent payments, or causes a lot of wear and tear on your property, you’re likely stuck with them until they move out voluntarily.
How Often Can a Landlord Raise Rent in California?
Landlords with long-term lease agreements of a year or longer can raise the rent up to once a year.
For month-to-month rental agreements, landlords can raise the rent up to twice a year under AB-1482.
How Much Notice Period is Required When Raising the Rent in California?
If you plan to raise the rent by less than 10% and the tenant has lived there for less than a year, you must give them 30 days’ written notice. For renters who have lived in the property for a year or longer, you must provide 60 days’ notice.
If you plan to raise the rent by more than 10%, you must provide 90 days’ written notice.
“But wait a minute, I thought you said landlords can’t raise the rent by more than 10% in a year?”
The Tenant Protection Act of 2019 does offer a few exceptions for rent hikes.
What Buildings Are Covered Under AB1482?
The statewide California rent stabilization law only applies to buildings older than 15 years. For the first 15 years after a building is built, it can charge market rental prices and increase them based on rental market demand.
The law also exempts the following buildings from the rent increase limits:
- Single-family homes and condos which are not owned by a corporation, a corporation-owned LLC, or REIT
- A duplex where the landlord lives in one of the units (house hackers)
- Mobile homes
- Schools and college dorms
- Rental properties managed by non-profit organizations
The statewide rent hike restrictions also don’t apply in areas with stricter rent control policies.
California Cities with Rent Control
A dozen of California’s cities impose rent control on landlords. Make sure you understand all the laws and restrictions before you invest — or better yet, invest in more landlord-friendly markets.
Most of Berkeley’s multi-unit properties built before June of 1980 are covered by rent regulations. Not only does the legislation put a cap on the rent but also garbage and packing fee. The rent ordinances also include security deposit regulations and eviction protocols.
California state laws require landlords to give a 90-day notice if the rent increase will be more than 10%. For other changes, the notice should allow for a 30-day before enforcement.
Landlords in Berkeley can demand a security deposit up to 2 times the monthly rent. However, they are also required to pay interest on the security deposit for every rental unit protected by the Berkeley Rent Ordinance. Additionally, landlords can charge a tenant screening fee of up to $52.59. There are eleven “good causes” for eviction outlined by Berkeley’s municipal code. Anything outside of these requires a decision by the court. In terms of habitability, the mandatory repairs include properly functioning heating, plumbing, and electricity. Also, the walls and roof should be waterproof. Besides that, landlords are required to provide rental grounds and buildings that are free of garbage, debris, pests, and rodents.
See Berkeley’s rent regulations for more information.
2. Beverly Hills
The rent stabilization ordinance for the city of Beverly Hills caps the rent increase rate at 8% annually or per the consumer price index. The security deposit can also be increased concurrently and by the same percentage. Any building in the city constructed before September 20, 1978, has 2 or more units and the move-in rent was $600 or below is covered by the Rent Control Ordinance. Some properties are exempt from these regulations, though, and as a landlord, you will have to dig up more information on that.
Additionally, landlords in the city of Beverly Hills should register all rental properties that are eligible for protection under the rent ordinance. There are 13 “good causes” for eviction listed. The landlord should give the tenant a 90-day written eviction notice before implementation. However, the notice must first be filed with the city of Beverly Hills clerk before a tenant is served.