How to Properly Calculate a Rent Increase

Beverly Hills is a rent control city, which means that the allowed annual rent increase for rental apartments is regulated by the rent stabilization ordinance. Each year the allowed increase varies according to the change in consumer prices and that allows for some confusion. Calculating the correct increase based on the allowed percentage is easy. Here’s how!

What Increase Does our Rent Stabilization Ordinance Allow?

For Chapter 6 rent stabilization tenants, the city establishes the allowed percentage increase each July based on the preceding year’s change in consumer prices (CPI) for the Los Angeles – Long Beach – Anaheim region. The allowed percentage is 100% of CPI meaning that the allowed percentage is the same as the percentage change in consumer prices from May to May. The city posts the allowed increase on the Rent Stabilization Program webpage.

For Chapter 5 tenants (just 3% of all renting households) the city uses a different formula but one that is also linked to 100% of CPI for our region. However owing to a long-ago policy the Chapter 5 allowed annual rent increase is calculated monthly. (For a deep dive see our analysis: Has the City Been Incorrectly Calculating Chapter 5 Increases?) The allowed Chapter 5 rent increase is also posted on the Rent Stabilization Program website.

Despite the different approaches some elements of the allowed annual rent increase are consistent:

  • The rent can be no more than the initial rent for the apartment plus subsequent increases in accord with the city’s ordinance;
  • It is not lawful for the landlord to keep rent in excess of the lawful rent for an apartment;
  • The rent can be increased no more frequently than every 12 months and must be noticed at least 30 days before it takes effect;
  • A rent increase must be lawfully noticed to the tenant to be effective (not verbally or casually but instead as a change in the terms of the tenancy;
  • The rent increase is calculated on the ‘base rent’ for the apartment exclusive of any surcharge, pass-through or landlord-imposed fee or cost (such as a utility charge);
  • These provisions apply to a month-to-month tenancy just as would to a lease renewal.

Now that Beverly Hills is requiring landlords to register each rental unit and report the lawful base rent, it is important that tenants understand how to properly calculate the rent increase. We advise tenants to review their rental history when they receive a ‘Rent Reported by the Landlord notice.’ Were there unlawful past rent increases? Mistakes do happen.

This brief guide explains a few basics about calculating the percentage increase in the rent based on the new and old rent.

Calculating the Percentage Change Between Two Rents

A most common tenant question is simply, “Is my landlord allowed to raise my rent by that much?” Verifying that the percentage increase is lawful means calculating the percentage change between the old rent and the new rent.

To calculate the percentage increase we take the dollar difference between the original rent and the rent after the increase and compare that to the original rent. Dividing the dollar amount by the original rent provides the percentage increase. The steps:

  1. Take the higher new rent and subtract from it the rent amount prior to the increase. Example: $2,062 – $2,000 = $62.
  2. Divide that monthly dollar difference by the original rent. Example: $62 / $2,000 = .031
  3. Multiply the numeric increase over the prior rent (it is .031 higher) by 100 to arrive at a percentage expression of that figure. Example: .031 X 100 = 3.1%.

For example:

New rent Old rent Dollar change Divide by old rent Numeric change Percentage
$2,062 $2,000 $62 62÷2000 .031 x 100 3.1%

If the answer is a negative number then it represents a percentage decrease. But we expect few to no tenants to be finding a rent decrease in our hot rental market!

Calculating the New Rent After a Percentage Increase

The new rent after a rent increase is found by multiplying the original rent by the amount of the increase to determine the dollar change. Then the dollar change is added back to the original rent. For a 3.1% increase on a $2000 rent for example the steps are:

  1. Convert the percentage figure (3.1%) into a decimal by dividing it by 100. Example: 3.1 / 100 = .031
  2. Multiply the original rent by the rent increase to get the monthly dollar increase. Example: $2,000 x .031 = $62
  3. Add the dollar amount of the increase to the original rent to get the new rent. Example: $2,000 + $62 = $2,062

For example:

Starting rent Increase % Multiplier Dollar change After increase
$2,000 3% 0.031 $62 $2,062

Calculating the lawful base rent after successive lawful increases

The principle for calculating successive increases is the same as for a single increase. We find the percentage multiplier then apply it to the current rent and then adding it back to the original rent to get the new rent amount. For successive increases we just rinse-and-repeat but start with the base rent on the lease. And we allow only lawful rent increases.

If the base rent was $2,000 on the lease, then we can then calculate subsequent lawful rent increases like this hypothetical example:

  • Year 2 was a 3.1% increase so the new rent was $2,062 (3.1 is divided by 100 for a .031 multiplier; then that multiplies the $2000 rent to produce a $62 dollar increase. That is added back to the original rent to produce the new rent of $2062.)
  • Year 3 was a 1.6% increase so the new rent was $2,095 (1.6 is divided by 100 for a .016 multiplier; then that multiplies the $2062 rent to produce a $33 dollar increase. That is added back to the original rent to produce the new rent of $2095.)

Compounding an Unlawful Increase

And so on. Again, the increases must be properly-noticed and be no more than the maximum allowed at the time of the increase. We can take a look at how rent increases work over the life of a tenancy if we start from that same lease base rent of $2,000 and apply eight years of increases.

Hypothetical nine-year tenancy increased by actual CPI (2011-2018)
Starting rent Year 2
(3.1%)
Year 3
(1.6%)
Year 4
(1.0%)
Year 5
(1.7%)
Year 6
(1.1%)
Year 7
(1.4%)
Year 8
(2.5%)
Year 9
(4.1%)
$2,000 $2,062 $2,095 $2,116 $2,152 $2,176 $2,206 $2,261 $2,354
(reported rent)
Same nine-year tenancy adjusting for the unlawful second-year increase
Starting rent Year 2
(0%)
Year 3
(1.6%)
Year 4
(1.0%)
Year 5
(1.7%)
Year 6
(1.1%)
Year 7
(1.4%)
Year 8
(2.5%)
Year 9
(4.1%)
$2,000 $2,000 $2,032 $2,052 $2,087 $2,110 $2,140 $2,193 $2,283
(lawful rent)

The first row shows the rents calculated for eight years of rent increases (which reflect the actual change in consumer prices over the past eight years for this hypothetical example). If the lease rent was $2,000 and there were eight subsequent increases at CPI, as shown, then the current base rent is $2,351. (Presumably that is what also reported by the landlord.) But what if one of those increases was not actually lawful?

The second row shows the same starting rent of $2,000 and it is increased by CPI EXCEPT that the second-year increase was not a lawful. So we adjust the 3.1% CPI increase that year to zero percent (denoted in red). It is zero that year because the increase wasn’t valid. This provides some comparison of the effect of the unlawful increase on the current rent and why it’s good to revisit the rent record.

In the example, the current base rent would be $2,283 instead of $2,354 once that unlawful second year rent increase is invalidated. That’s a savings of $71 each month the final year. The tenant could claw back those over-payments over three years and that would total $2,460 if she can demonstrate with her rent records that that second-year rent increase was not lawful.

Remember, all rent increases must be properly noticed. That can be in-person or by mail, and no later than 30 days before (or 35 days before if mailed). Proper notice is not a verbal message, a casual note, or a text message. But if the tenant did specifically agree to the increase then the proper-notice issue may be mooted. In that case the other consideration still stands: the percentage must always have been at or below the maximum allowed annual rent increase. The tenant cannot consent to an unlawfully-high rent increase.

Renters Alliance has a Rent Increase Worksheet to help tenants document the changes in rent over time to the current year. Instructions are included! Download our rent increase worksheet.

Use the Rent Appeal Process to Confirm Lawful Increases

As we explain in our post, Rental Unit Registration: What You Need to Know, the registration process is a good time to review the rent record. One reason is that recent amendments to the rent stabilization ordinance introduced some confusion. Chapter 6 tenants will remember that the city allowed a 10% annual rent increase until January of 2017 when the percentage was reduced to 3%. Here’s where it gets complicated!

City Council made that 3% cap retroactive: the rollback would apply to any rent increase that had not yet been paid by a tenant as of the Council’s action on January 24th. A tenant noticed of the increase in January, for example, even as early as January 1st, would not pay a higher increase as long as she had not begun to pay the increase.

Let’s say a tenant was noticed before January 24th that effective February 1st her rent is up by 10%. She had not paid on the higher rent on January 24th, though, so City Council’s retroactive rollback of all Chapter 6 increases to 3% meant she would not pay the 10% increase even though she was noticed it was going up 10%.

Moreover, if the new (rolled-back 3%) increase was not noticed properly, fully 30 days in advance of when it takes effect, then the increase was not lawful. Let’s say her landlord corrected his 10% increase on his own; he notified her that it wasn’t 10% anymore but now it was 3%. If he didn’t give his tenant 30 days notice, then she would not pay that increase until more than 30 days afterward, which would be about March 1st.

And if the landlord never formally rescinded the excessive increase, and never properly noticed the rolled-back 3% increase in writing, then that 3% never should have been paid at all. Let’s say he picked up the phone and said simply, “Forget the 10% — send me a check to include a 3% increase” then she has an opportunity to say she was never properly notified.

Given uncertainty around the rent increase retroactive rollback on January 24th some landlords are likely to have levied unlawful rent increases (more than 3%) either unwittingly or perhaps to take advantage of an unwitting tenant. In either case a tenant who received an early-year increase should review her rent records carefully. What was the percentage? When was the notice given? When was the higher rent actually first paid? There could be an opportunity to claw back a too-high increase (and some marginal part of future rent increases). That’s what this rent appeals process is for! Use our Rent Increase Worksheet v1 to verify your record of rent increases.