New Lease Rental Question

[Prachi Metha]

We acquire a property with already a tenant in it. The lease is up since May end and we are supposed to make a new lease. Is there any rent cap that we are supposed to follow? Rent is way below the current market rent and since it is a new landlord and new lease agreement, can increase the rent as per the current market rent. Please advice.

[Howard Chen]

Quote from @Prachi Metha:

We acquire a property with already a tenant in it. The lease is up since May end and we are supposed to make a new lease. Is there any rent cap that we are supposed to follow? Rent is way below the current market rent and since it is a new landlord and new lease agreement, can increase the rent as per the current market rent. Please advice.

The following info cited from Rentspree, is more or less the guideline I remember

“Under the provisions of the Tenant Protection Act (TPA), landlords are allowed to increase rents each year by 5% plus the applicable average increase in the cost of living in order to allow for inflation. There is a maximum increase of 10% allowed in any given year, thus the Act’s provision is often referred to as a “rent cap.”

To calculate the cost of living increase that is applicable to your market, use the Consumer Price Index (CPI) published by the Bureau of Labor Statistics. According to AB 1482, landlords are required to use the CPI from the previous April for their specific market area to calculate the allowable rent increase.

Properties that are exempt from rent control

In general, California rent increase law is aimed at multi-family apartment complexes and provides a number of exemptions, including the following:

• SFRs (single family residences)
• Condominiums
• Owner-occupied duplexes
• Mobile homes
• School, college, and university -dormitories
• Hotels
• Rental properties built within 15 years prior to the Act, including ADUs (accessory dwelling units)
• Properties that are not owned by a corporation, REIT (real estate investment trust) or LLC where one member is a corporation
• Property provided by non-profit organizations
• Property that is subject to pre-existing local ordinances

Landlords for exempt properties must provide a notice of exemption from AB 1482 to their tenants. If you believe that your property is exempt, check with your real estate attorney to draft a notice of exemption or consult with a professional organization like California Apartment Association or California Association of Realtors for up-to-date forms and information.

Providing tenants with a rent increase notice

It is important to be clear and timely in communicating with your tenants if you decide to increase your rent. Check with your attorney to see if there is specific information you should include in your market and to determine what the timeline is for notification. In general, a California rent increase notice will include the following information:

• Names of each tenant
• Property address
• Your name and contact information
• The date of the rent increase notification
• Rental amount for the previous tenancy
• New rental amount per month
• Effective date of the rent increase
• Section of the lease agreement relating to rent amount
• Requirement for non-renewal notification
• Section of the lease agreement relating to non-renewal notification”

I hope this helps.