Maximum Allowed Annual Rent Increase: What You Need to Know

Recently Beverly Hills posted the new maximum allowed annual rent increase percentages for both Chapter 5 and Chapter 6. The latter is tied to the year-over-year percentage change in consumer prices for our region, which the government releases in June of each year. Which got us thinking: Has anyone explained to Beverly Hills tenants exactly how the maximum allowed annual rent increase works?

The Bureau of Labor Statistics every month releases new price data for goods and services (including the cost of rental housing) for urban consumers in the Los Angeles-Long Beach-Anaheim region. The change in prices is announced in a monthly BLS release (for example this one from June 2019). Like other rent-stabilized cities, Beverly Hills indexes the allowed rent increase percentage for Chapter 6 tenants to the year-over-year change in prices from May to May. The new percentage is published on the city’s rent increase webpage when announced by BLS.

In the following sections we provide probably all any tenant needs to know about the maximum allowed annual rent increase in Beverly Hills. We will first summarize the key points; clarify a couple of issues concerning lawful notice; and then turn to the particulars of the relevant state and local laws.

The Maximum Allowed Annual Rent Increase in a Nutshell

  • The rent can be increased only once in any 12-month period;
  • The allowed maximum increase percentage is posted on the city’s website with the Chapter 6 increase published once a year in June and the Chapter 5 increase posted monthly;
  • The landlord can demand the maximum allowed percentage (or demand no increase) at the landlord’s discretion unless he has failed to register the apartment with the rental unit registry;
  • Notice of the rent increase must be a formal change in the terms of tenancy, which means a dated, written notice which is posted or mailed 30 or 35 days (respectively) in advance of the date of the effective increase;
  • An improperly-served notice (for example email, text or verbal) or an insufficient notice (undated or does not specify the amount of the new rent) must be served again according to the legal requirements; and,
  • A notice of rent increase which, for any reason, must be served again restarts the 30-day clock (or 35 days in the case of a mailed notice).

That’s all evident from a plain reading of the relevant state laws and the city’s rent stabilization ordinance. However the publication by the Bureau of Labor Statistics of the percentage on which the rent may be increased can introduce additional questions about the timing of notices. We address those in a separate explainer, What if My Rent Increase Comes Just Before or After the New Percentage is Announced?

On to the particulars of the maximum allowed annual rent increase. Again, this applies only to Beverly Hills rent-stabilized rental housing.

Proper Service of the Notice is Required

A rent increase notice must be properly served to be lawful. An improperly-served notice renders the rent increase not enforceable. (The law does not allow the landlord to keep any rent above the lawful rent.) Civil Code §827(b)(1) is very specific about proper noticing:

In all leases of a residential dwelling, or of any interest therein, from week to week, month to month, or other period less than a month, the landlord may increase the rent provided in the lease or rental agreement, upon giving written notice to the tenant, as follows, by either of the following procedures:
(A) By delivering a copy to the tenant personally.
(B) By serving a copy by mail under the procedures prescribed in Section 1013 of the Code of Civil Procedure.

Note that proper services does not include email, text, phone or any other means.

The Notice Must be Sufficient

The notice of a rent increase must not only be properly served in writing; it must clearly state the date of the notice; the effective date of the increase; and both the amount of the current base rent and the amount after the increase.

The rent increase can apply only to the base rent and not to additional charges (such utilities or parking which may be changed with a separate 30-day change-of-terms notice). We explain how to calculate the percentage increase from the current and future rents in our aptly-titled explainer, How to Properly Calculate a Rent Increase.

An improperly-served notice or a deficient notice is tantamount to no notice at all. The landlord is obliged to re-notice the increase in accord with the requirements of state law. And if a new notice is posted, the effective date of the rent increase can’t be fewer than 30 days hence. So the landlord cannot simply correct the problem by, say, posting a proper notice using the same effective date as the earlier notice unless that date is 30 or more days away.

Any question about a possibly defective or improperly-served notice should be directed to the Rent Stabilization Program office at (310) 285–1031. Politely informing the landlord of his mistake is recommended.

The Rent Can be Raised Only Once Every 12 Months

State law requires that the magnitude of the increase be lawful and makes the effective date of the new rent increase the benchmark against which the current rent is established for the purpose. Civil Code §827(b)(2):

If the proposed rent increase for that tenant is 10 percent or less of the rental amount charged to that tenant at any time during the 12 months prior to the effective date of the increase, either in and of itself or when combined with any other rent increases for the 12 months prior to the effective date of the increase, the notice shall be delivered at least 30 days prior to the effective date of the increase, and subject to Section 1013 of the Code of Civil Procedure if served by mail.

The rent amount in effect “at any time during the 12 months prior” to the effective date of the increase is determined as the base rent against which the new increase is evaluated. Is the percentage of the new increase higher than what’s allowed by state or local law? For most tenants in California, the landlord dictates both the frequency and magnitude of the increase. But not in Beverly Hills!

In Beverly Hills the rent stabilization ordinance limits both the frequency and magnitude of the rent increase. B.H.M.C. 4–6–3 subsection (A) puts the limit on the frequency of the allowed increase:

Only one increase shall be permissible within any twelve (12) month period; provided, further, that a twelve (12) month period shall have elapsed since the last increase.

That’s why we call it the maximum allowed annual rent increase: our rent stabilization ordinance establishes the cap on the annual rent increase and limits it to one increase per year.

How Much Can the Rent Be Raised for Chapter 6 Tenants?

B.H.M.C. 4–6–3 subsection (B) dictates the percentage:

Such increases shall not exceed the greater of: 1) three percent (3%) of the rental rate then in effect, or 2) the percentage equal to the percentage increase, if any, of the Consumer Price Index for the Los Angeles/Riverside/Orange County Area, as published by the United States Department of Labor, Bureau of Labor Statistics between May 1 of the then current year and May 1 of the immediately preceding year.

The Rent Stabilization Program will publish the allowable annual increase for Chapter 6 tenants every June.

Note that the ordinance says “the greater of” 3% or the percentage of CPI. That 3% is a floor that serves as a straight-up subsidy to the landlord as we describe in the commentary, Make the Chapter 6 Maximum Rent Increase Floor-Free!. With the floor the landlord rides inflation higher because the percentage cap floats upward with consumer prices. However in low-inflation times, the maximum allowed annual rent increase won’t drop below 3% (even when consumer prices decline in deflationary times).

What About Chapter 5?

The Chapter 5 increase is calculated differently than for Chapter 6 that 1) the Chapter 5 increase percentage is recalculated every month; and 2) the Chapter 5 increase is also 100% of CPI but it is calculated using an arcane formula to arrive at the allowed monthly percentage. B.H.M.C 4-5-303 subsection (A) explains:

For annual increases effective on any date between May 31, 1979, and May 30, 1980, inclusive, no such increase shall exceed an amount computed in accordance with the latest published figure reflecting the increase for a twelve (12) month period in the Urban All Items Consumer Price Index (CPI) for Los Angeles (or any successor equivalent), as published by the United States Department of Labor, Bureau of Labor Statistics. The proper method for computing such an increase in the CPI shall be as follows: The latest published CPI figure shall be added along with such figures for the preceding eleven (11) individual months, and, from the sum reached, there shall be deducted the sum of such figures for the twelve (12) months further preceding the last such twelve (12) months. That remainder shall then be divided by the lower of the two (2)
sums heretofore mentioned, and the resulting figure shall indicate the permissible maximum percentage by which the base rent may be increased by virtue of the rise in the CPI.

The formula is so complex it seems to have tripped-up the city itself as we found in our analysis, City Has Been Incorrectly Calculating Chapter 5 Increases. Notably the discordance between the formulae produced a surprising result: for the first time ever the Chapter 5 allowed rent increase was higher than that for Chapter 6. The world has turned upside down! And very much to the consternation of fixed-income tenants who find that the recent allowed rent increases nearly double the Social Security cost of living adjustment.

The Notice Must Be Served at Least 30 Days in Advance

The other relevant aspect of Civil Code §827(b) subsection (2) concerns the advance notice required for a rent increase:

The notice shall be delivered at least 30 days prior to the effective date of the increase.

This is very important: any notice posted fewer than 30 days in advance (or 35 days in advance if it was mailed) is simply not a valid notice; the rent increase will not take effect until 30 days after a properly-served and sufficient notice is given. Again, the clock starts anew when a replacement notice is given.

This explainer outlines the maximum allowed annual rent increase under state and local law. Unlike most tenant resources, Renters Alliance provides the applicable requirements for tenants living in Beverly Hills. Moreover most of the provisions highlighted here apply only to tenants in rent-stabilized rental housing. Those who rent a single-family home, or rent a condominium from the individual buyer, or who rent in a post–1995 building, lose the protection of a capped increase. In fact, those tenants can not only see unlimited rent increases, but can get one more frequently than once every 12 months.

Are you a tenant not covered by the rent stabilization ordinance but want to be? Get in touch. Renters Alliance wants to hear from you!