Calculating Rent Increases for Tenants and Property Owners

#RentIncreases. The first big misconception is that everyone in San Francisco is entitled to Rent Control. The SF Rent Ordinance applies to all buildings of two or more units built before June 13, 1979, the date when the Rent Ordinance was adopted. All properties with a certificate of completion and occupancy after that date are NOT subject to the Rent Ordinance. 

The majority of rental housing in SF is built before 1979 and is therefore subject to Rent Control. Owners of these units are limited in the amount they can increase rents and the circumstances under which they can evict tenants from the building. 

Rent increases are regulated by the SF Residential Rent Stabilization and Arbitration Board, or simply, “The Rent Board.” The Rent Ordinance mandates that the Rent Board calculates the rate of inflation using CPI each year in March and announces the maximum allowable rent increase percentage for that year at 60% of the CPI inflation rate. Let me say that again, landlords get 60% of the rate of inflation for existing tenants even though their expenses rise at 100% of the rate of inflation. The only way to make sure you continue increasing your revenue to cover increases in expenses is to have vacancies. If you never have vacancies you’ll never be able to keep up. In my opinion, this creates a disincentive for many owner-operators to provide good service to their tenants because doing so encourages them to stay and continue to take advantage of the increasingly below market rent they receive. This doesn’t apply to vacancies, however. When a landlord gets a vacancy they can charge whatever they wish for that unit. 

Effect of Rent Control is that landlords wonder when they’ll get a vacancy again so they overvalue getting the highest rent and undervalue the losses of vacancy while they wait for that high price. 

Another interesting detail is the difference between rent increase protection and just-cause eviction protection.

All buildings of two or more units built before 1979 are subject to price protection and just-cause eviction protection. This leaves an interesting exception: single units. Single family homes and condos built before 1979 are not subject to the Rent Ordinance’s price restrictions on rent, though they ARE subject to just cause eviction protection. As a result the landlord is free to increase rents to market but cannot move to evict the tenant without proving just cause. Properties built after 1979 are NOT subject to just cause eviction protection so, as a result, the landlord can simply terminate the tenancy without giving a reason. In this situation, California state law is the governing regulation applied to new construction and it requires that tenants who have resided in their unit for less than one year may be terminated with 30 days notice; those who have resided in their units for more than one year must be given a 60 day notice to vacate. 

California state law also regulates the terms of rent increases for new construction but only slightly. For any increases of less than 10% (or cumulative increases within a 12 month period amounting to 10%) the landlord must give 30 days; for more than 10% the landlord must give 60 days.

Calculating Rent Increases Under Rent Control

Rent increases under rent control are based on anniversary dates and whether the rent has been increased after the tenant’s original lease was signed. 

Let’s take an example scenario: you sign a one year lease starting July 1, 2016 expiring June 30, 2017. Your landlord can increase your rent by 2.2% effective July 1, 2017, the one year anniversary of your lease. The increase notice must be sent 30 days in advance, plus five days if you’re mailing the notice, so it has to be mailed by May 26, 2017 to be effective July 1, 2017. 

That’s pretty simple, right? Now how about if your landlord hasn’t increased your rent in a few years? This is typically called “banked rent increases” and allows your landlord to increase your rent to the maximum allowable rent for your unit going forward. Your landlord cannot go back and collect uncollected/uncharged rent from previous months but he/she can increase the rent going forward. Let’s take a similar example: your signed a one year lease on July 1, 2010 expiring June 30, 2011. The landlord wants to increase your rent effective July 1, 2017. How much can he/she increase your rent? 

The answer is based on the increase percentages. Look at the SF Rent Board worksheet posted here in the comments and find the range of dates into which your unit’s anniversary date fits. In this case it’s July 1, 2011 so the first rent increase percentage from that 2011-2012 year was 0.5%. Then add in all the successive years (1.9% + 1.9% + 1.0% + 1.9% + 1.6% + 2.2%) to get your total percentage of 10.5% rent increase. That amount can be increased right away but, as we discussed above, it’s more than 10% so the landlord has to give you 60 days notice for the increase!

If your landlord processes your rent increases on a date other than the anniversary of the lease then successive increases will need to be calculated on that new anniversary date, not on the lease renewal date. I know of owner-operators who process all their rent increases once each year without regard to the lease expiration date for their own ease of calculating them. Let’s say, for example, they do all their increases in January to start the new year off right. With our previous July to June lease term the landlord loses the first year’s increases from July to December in the second year of the tenancy just so they can wait to do the increases together. 

Not able to increase the rent to “whatever you want” to circumvent the owner move-in eviction regulations.

Discussion of managing rent increases for non Rent Controlled units. Sometimes we find it’s easier to accept a slightly lower rent to avoid a vacancy because we know we’ll always be able to increase the rent to match market later if we’re comfortable with the risk at that time.